Arab oil embargo of 1973 - Business in United States of America
The Event: The cessation of oil exports from Arab states to the United States and some Western European countries that supplied the Israeli military as a result of American support of Israel during the 1973 Yom Kippur War
Date: October 17, 1973-March 17, 1974
Place: United States, Arab states, Western Europe
Significance: The immediate effect of the 1973 oil embargo was a decrease in the amount of crude oil and petroleum products available to American businesses. The long-term effects were large increases in the price of oil that motivated the United States and other nations to begin developing large-scale conservation efforts to reduce their dependence on oil, as well as increased domestic exploration to reduce the dependence on foreign oil.
Following World War II, two series of events shaped the Middle East. Politically, the creation of the state of Israel sent shock waves through the region. Three wars were fought within twenty years between the new Jewish state and its hostile neighbors. Economically, the development of the oil fields in and around the Persian Gulf brought great wealth to the region. However, until the early 1970’s, American and Western European oil companies were able to keep the price of crude oil relatively low and relatively stable. In 1973, these political and economic forces came together, resulting in the Arab oil embargo.
In the fall of 1973, the Organization of Petroleum Exporting Countries (OPEC) sought to increase the price of oil, because the dollar was losing value. On October 6, Egypt and Syria attacked Israel, starting the Yom Kippur War. The Persian Gulf oil producers sought to weaken the ties between the United States and Israel, which relied on U.S. support. Thus, on October 17, OPEC decided to end exports to the United States and any other countries supporting Israel. Within two days, all the Arab oil exporters joined in this action. In just over two weeks, OPEC cut its production by one-fourth. Although the war lasted only twenty days, the embargo lasted five months.
The cut in oil production by the Arab states represented only about 7 percent of the petroleum available to the United States. The psychological impact of the embargo, however, was strong. American oil consumption dropped in response to the embargo, but there were still extensive areas of the country that experienced gasoline shortages. By the time gas prices stabilized, they had increased by about 45 percent. The entire country was affected, and businesses either passed on their increased costs to their customers or went out of business. Prices increased across the economy. The threat of another oil embargo gave the government an incentive to encourage more domestic oil production and exploration. The OPEC embargo was thus the first step toward the creation of the global free market in crude oil.
One long-term effect of the embargo was to encourage the government, businesses, and individuals to seek ways to conserve energy. The government would eventually pass a law mandating fuel efficiency standards in automobiles and provide incentives to companies seeking alternative sources of energy. The U.S. industry most affected by the crisis and its aftermath was the automotive industry. With the advent of substantially higher gas prices, the demand for smaller, more fuel-efficient cars increased. The crisis marked the beginning of the decline of the American auto industry, as Japanese firms associated with smaller cars grew rapidly.
Donald A. Watt
- Pelletiere, Stephen. America’s Oil Wars. Westport, Conn.: Praeger, 2004.
- Zalloum, Abdulhay Yahya. Oil Crusades: America Through Arab Eyes. London: Pluto Press, 2007.